Economist's Outlook

The Almighty Dollar is showing the world who is the boss. The dollar has strengthened against nearly all other foreign currencies in the past year. The strong dollar is a reflection of better economic conditions and greater confidence in the U.S. versus the rest of the world. The dollar now carries a bigger purchasing power. But the impact is not necessarily positive.

Numerically, on average the U.S. dollar has strengthened by 11 percent in the past 12 months to February and even by more over the past few years. Against some currencies the gains have been even more dramatic. The U.S. Dollar is up 25 percent compared to recent years against the Canadian counterpart; up 17 percent against the Euro; up 47 percent against the Japanese Yen; and up by more than 100 percent against the Russian Ruble. In the simplest term this gain means Americans traveling abroad will see bargains everywhere and will be extra proud of their home country. For Americans staying at home, many of the foreign-made products at Walmart, for example, will be cheaper.

The strong dollar unfortunately will not translate into lower housing costs. Why? Land cannot be shipped across oceans and construction workers demand dollar compensation. That is why rents are rising at 3.4 percent, essentially at a 7-year high, and home prices are appreciating at more than 5 percent.

One way the stronger dollar will help the real estate market is that the interest rates can stay low for longer. The Federal Reserve will raise interest rates sometime this year. The date of interest rate hike is likely being pushed further away because the strong dollar has tamed inflation (outside of housing costs). Even with the likely delay by the Fed on rate hike, the mortgage rates will be on an upward path, reaching possible 4.5 to 4.7 percent by the end of the year (though not likely over 5 percent as previously forecasted before the dollar gains).

Today, the U.S. dollar is the unrivaled global reserve currency. Britain, about 100 years ago, had the global currency status where one British Pound could command $5. In the long distant past, Venice held the global reserve currency and thereby its economy flourished. The importance of the global reserve currency was noted by Shakespeare in his play Merchant of Venice. It would have been very easy for a short-term gain to simply default on the loan rather than pay … with a pound of flesh. But the Venetians knew that default on a contract meant that they would lose their global reserve currency status and end its economic prosperity. So there was to be no debasing or shaving of Venetian coins and the rule of law and not rule of passion was to be the mainstay of Venetian society.

The Survey of Mortgage Originators for the 4th quarter of 2014, takes stock of the QM rule, a year after its introduction, as well as a number of policy issues and changes. Respondents were asked their view of new pricing at the FHA as well as the GSE’s 3% product, lower limits for the VA, the impact of new RESPA/TILA rules, and their perspective on representation and warrant risk as well as government overtures to ease overlays are all addressed. In general the non-QM space remains small and lenders are concerned about risks, but they are optimistic for the future.

Highlights of the Survey

Half of respondents indicated that the QM rule had had a “small negative impact” on the market, while 35% indicated that impact was significantly negative. 10% indicated no impact, while 5% reported a small improvement.

The non-QM share of originations tumbled to 1.8% of production in the 4th quarter from 5.0% in the 3rd. However, the rebuttable presumption share rose from 3.5% to 6.3%.

45% of respondents indicated having had an issue closing a loan due to some facet of the QM rule, down from 64% in the prior quarter. After increasing in the 3rd quarter, the share of lenders using buffers to prevent infractions of the QM rule eased.

Respondents’ confidence in their preparations for the QM/ATR rules leapt to 70% from 59.9% in the 3rd quarter.

The share of lenders offering rebuttable presumption and non-QM products was roughly unchanged from the 3rd quarter. However, willingness to originate non-QM mortgages flattened or fell only modestly from the 3rd to the 4th quarter after falling sharply over the prior two quarters. Lenders’ willingness to originate prime mortgages continued to gain steam even for those with lower credit scores.

Over the next 6 months, respondents expect improvements in credit access for prime products, including lower credit prime borrowers, but a more modest improvement for non-QM and little change for rebuttable presumption. Likewise, the majority expects improvement in investor demand across the board, but emphasized the prime segment.

75% indicated that the GSE’s new 3% down payment product would improve access to credit, while 90% believe the FHA’s fee reduction will improve production with a weighted average increase of 8.5%. Lower VA limits would reduce production by 0.8%.

85% of respondents either were or expected to expend considerable time preparing for the new RESPA/TILA rules, but 65% felt that CFPB guidance had been at least adequate.

85% had been the subject of a GSE repurchase request and this factor was lenders’ primary concern about lending in the higher risk space. Only 40% indicated that recent overtures by the GSEs to clarify and soften rep and warrant risk would improve their willingness to originate higher risk mortgages, while 20% would wait-and-see. More clearly defined triggers for repurchase risk was the factor respondents felt would help most to improve credit access

Finally, low housing supply, more than tight credit access or weak demand factors, was the leading factor holding back production according to survey respondents.

The indexes for the REALTORS® Confidence Index-Current Conditions across property types rose in January 2015 compared to December 2014. The index for single-family homes was 58 (51 in December 2014; 60 in January 2014). The indexes for townhomes and condominiums also improved, although they are still below 50.

REALTORS® reported that the decline in the 30-year fixed mortgage rate to less than 4 percent since October 2014 has attracted buyers, but there is not enough housing inventory supply, especially for “affordable” and “fresh” listings. At the local level, REALTORS® in states adversely affected by the harsh winter such as Massachusetts, Pennsylvania, and Illinois reported market slowdowns.

NAR released a summary of pending home sales data showing that January’s pending home sales index is modestly up 1.7% from last month and improved 8.4% from a year ago which could provide positive momentum for the coming months.

Pending sales are homes that have a signed contract on them but have yet to close. They tend to lead Existing Home Sales data by 1 to 2 months.

January’s data shows a fifth consecutive month of year over year gains in pending sales. Regionally, the West saw the biggest gains from a year ago at 11.4%, while the Midwest had the smallest gain at 4.2%.

All regions showed growth from last month, except the Midwest which was down 0.7%. While the South had the biggest gain of 3.2%, the South is also the region with the highest pending sales index level out of the US and the four regions. The pending home sales index level was 104.2 for the US. A level of 100 is consistent with the pending home sales activity in 2001, a year when existing home sales activity was about 5.1 million.

Consumer prices (CPI) fell 0.7 percent in January as declines in gasoline prices more than offset increases in food and shelter prices. Core inflation, a measure that excludes volatile food and energy prices, increased 0.2 percent for the month.

While the headline rate of inflation shows a decline of 0.1 percent or slight deflation, core inflation at 1.6 percent is just below the Federal Reserve’s 2 percent inflation target[1]. Earlier this week, Chair Yellen testified to Congress and noted that, “The Committee expects inflation to decline further in the near term before rising gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate.”

Today’s data seems to be in line with the Federal Open Market Committee’s (FOMC) expectations as enunciated by Chair Yellen, so the FOMC is likely to stay the course on an eventual tightening, generally expected in the second half of this year. This is the last CPI data that will be publicly available before the next FOMC meeting on March 17-18 when the committee may decide to drop the word “patient” from the FOMC statement, signaling that an increase in the federal funds rate could come in the next few meetings if the economy continues to improve.

While overall prices are lower and core inflation is under the 2 percent target, prices of certain items are rising faster than that which might make some consumers feel that prices are increasing faster than the official rates suggest.

For example, rent of primary residences—actual market rents paid by individuals who do not own the home they live in (pictured below)—rose by 3.4 percent from a year ago in January. This was the 10th consecutive month of growth above 3 percent for this rent.

When rents are rising, it becomes more attractive to own a home. Because the bulk of home ownership costs for someone with a 30-year fixed rate mortgage are fixed, even if rents are initially cheaper, potential buyers can expect rent costs to catch up to ownership costs.

Owner’s equivalent rent of residences (OER), a measure to approximate price change for owner-occupied housing, rose 2.6 percent in January[2]. This was the 14th consecutive month of growth at or above 2.5 percent for OER. Together, the two rent components contribute more than 30 percent to the overall CPI, but if a renter is putting more than 30 percent of his or her income toward rent, then he or she will feel the squeeze of the increase in rents more than is suggested by the official index.

Real estate agents may be happy about the energy offset. In spite of increases in rents, energy prices were lower, especially gasoline prices which are down 35.4 percent from a year ago. The 2014 Member Profile shows that the typical REALTOR® spent $1,860 on expenses for the business use of a vehicle in 2013, an amount equivalent to 28 percent of the typical REALTOR® total real estate expenses in the same time period.

While agents can enjoy this benefit now, it may not be quite as big in the future. Daily oil prices are already up 15 percent from the low price they hit in late February though they remain substantially lower than they were one year ago.

[1] While the Fed does not target this specific measure, the factors driving the Fed’s preferred measure of inflation are the same.

[2] Owners do not actually pay the increased costs. OER is intended to estimate the change in the amount of money that an owner could rent their home for if they did not live in the home. This estimate is included as a factor in the CPI so as to lessen the effect of variation in the home ownership rate on the price series.

NAR released a summary of existing home sales data showing that January’s existing home sales are up from last year but down from last month starting the year off to a sluggish pace. January’s sales show a fourth consecutive month of year over year improvement up 3.2%, even though they represent the lowest sales level since April of last year.

The national median existing-home price for all housing types was $199,600 in January, up 6.2% percent from January 2014.

Regionally, all four regions showed growth in prices, the Midwest had the largest gain at 8.2% while the Northeast had the smallest gain at 2.7% from last January. All regions showed a decline in sales from last month, the West had the biggest decline at 7.1%. All regions showed an increase in sales from a year ago, and the South had the biggest gain at 5.6% while the Midwest had the smallest gain at 0.9%.

January’s inventory figures increased 0.5% from last month but are down 0.5 % from a year ago and it will take 4.7 months to move the current level of inventory. It takes approximately 69 days for a home to go from listing to a contract in the current housing market, slightly longer than last year at 67 days.

Single family sales decreased 5.1% and condo sales fell 3.5% from last month. Single family homes had an increase of 3.9% from a year ago, while condo sales slipped by 1.8%. Both single family and condos had an increase in price with single family up 6.3% and condo up 5.3% from a year ago, January 2014. Without an increase in inventories the pressure from demand is bound to have an impact on home prices going forward.

With the recent changes to the FHA’s pricing, it’s worth reviewing the FHA’s impact on the market. There are a number of ways to measure the FHA’s market share. No matter which method is chosen, the FHA’s market share has fallen significantly since its peak, ceding way to private capital.

The FHA has two roles: to act as a source of funding for credit-worthy borrowers who face limited access from private sources, like first time, low income or minority buyers; and to provide broader access to credit when the private sector pulls back in general, typically with economic stress. As discussed in a blog post from the spring of 2013, the FHA’s market share can be measured a number of different ways. It can be viewed as a share of:

• Total home purchases
• The mortgage market: purchase money, refinances, or the combined total, or
• The market for mortgage insurance

Furthermore, each of these measures can be calculated using either the total dollar volume of originations or by the unit count of originations. This is an important distinction, as the low average dollar value of homes financed using the FHA would lower its market share using a dollar volume measure, while it would increase a market share measure calculated with units.

Based on total home sales, a unit measure, the FHA’s market share fell by half from 2010 to 2014. Cash purchases increased following the housing bust due to tightened oversight and the specter of new regulations as well as from growth in investor demand. The increase in cash purchases reduced the share of purchases that were financed. In addition, private mortgage insurers (PMIs) expanded into the higher LTV ranges after 2011. The combined effect reduced the FHA’s market share.

By focusing on the mortgage market, the impact of cash purchases can be eliminated. However, the trend persists. The FHA’s share of mortgages for purchase as well as the combined purchase and refinance indexes fell sharply from 2009 to the 3rd quarter of 2014, the most recent data available. This trend holds true whether measured by units or dollar volume. The sharp rise in the “total” measures during 2014 depicted below in green and orange reflect the decline in refinancing following the rise in mortgage rates in the 2nd half of 2013, a portion of the market in which the FHA has historically played a minor role.

Another way to measure the FHA’s share is to focus specifically on its function as a mortgage insurer. The FHA, along with the Veterans Administration and the private mortgage insurance industry, provide insurance to the lender on loans where the borrower typically has less than a 20% down payment at origination. Measuring the mortgage insurance market by dollar volume, the FHA’s market share peaked in 2009 at 70.7% before easing to 34.1% in 2014. By the end of 2014, the FHA was within range of its average share in the late 1990s. The VA’s share of the MI market nearly doubled over this time frame with the expanded military over the last decade.

Finally, the FHA’s share of the market for mortgage insurers can also be measured by unit count. By unit count, the FHA’s market share peaked at nearly 72% of the market in 2008 at the height of its countercyclical role. The FHA’s market share fell steadily thereafter as the private mortgage market thawed allowing more borrowers to take advantage of better pricing in that segment (see post here for more information). Unfortunately, the trade association for private mortgage insurers that once provided this data no longer exists, so this series was not updated. Still, the trend was apparent and one can infer based on the other measures that this measure would decline as well.

The FHA’s market share expanded sharply following the great recession as private mortgage insurers dealt with rising defaults that taxed their capital, reducing their ability to issue new endorsements and to raise new capital. However, since 2011, the PMIs have recapitalized and expanded, repeatedly adding new products and reducing pricing. Today, the FHA’s role has declined significantly to within range of its historical role by several measures. Changes to the PMI’s capital requirements and pricing at the GSEs will likely improve their competitiveness, further shaping the FHA’s market share in the future.

REALTORS® sell homes both to resident and non-resident foreigners. How have sales to non-resident foreigners been, given that major parts of the world have been in economic slowdowns and that the value of the dollar has been appreciating?

The Answer is “Holding Up Reasonably Well.” As part of the REALTORS® Confidence Index survey REALTORS® provide information on existing home sales to non-resident foreigners. The level of sales fluctuates from month to month, so the graph presents the data on a 12 Month Rolling basis.

Sales to non-resident foreigners are currently in the 100,000 per year range, down a bit probably due to the current strength of the dollar and economic slowdowns in some foreign countries. With international economies now recovering, the outlook should be for additional sales and somewhat higher prices.

Today, Case Shiller released their housing price index data for December 2014 which showed that house prices rose 4.3 percent from December one year ago for the 10-city composite, 4.5 percent for the 20-city composite, and 4.6 percent for the national index.

On Monday NAR reported growing prices in December and some acceleration in January. Price growth in the year ended January 2015 was 6.3%. FHFA December data is to be released on Thursday.

Case Shiller’s city by city data highlight some regional variation in price change. Cities where prices are growing above normal pace, such as San Francisco (9.3 %), Miami (8.4%), Denver (8.1%), Dallas (7.5%), and Las Vegas (6.9%), are predominantly in the West.

Other areas where growth rates have been slower, like Chicago (1.3%), Cleveland (1.5%), Washington DC (1.5%), Minneapolis (1.9%), New York (1.9%), are concentrated in the Midwest and Northeast.

Case Shiller data, like NAR data is showing more even price growth across regions than we’ve seen in previous months as prices picked up a bit in previously slow growing areas and slowed down a bit in previously double-digit growth areas.

Also today, Fed Chair Janet Yellen delivered the semi-annual report on monetary policy to Congress. Fed watchers looking for clues on when the Fed will begin to raise interest rates will note that Chair Yellen explained the FOMC’s use of the word “patient.” The Committee intends the word to mean that it is “unlikely that economic conditions will warrant an increase in the… [fed funds rate] for at least the next couple of FOMC meetings.” Since the Committee left “patient” in the January statement, its next opportunity to be removed will come March 18 which suggests that the earliest Fed rate hike would come in June.

Those in the mortgage market in Spring 2013 will remember that mortgage rates can move strongly based on just the suspicion that the FOMC is going to raise rates. In fact, from its February 5, 2015 low, the Freddie Mac weekly mortgage rate survey shows that 30-year fixed rates are up nearly 20 bps and other market indications are that trend will continue.

The information provided by REALTORS® about local market conditions in January 2015 indicated a broad uptick in confidence and market activity compared to that in December 2014.

REALTORS® reported more buyer activity in their markets on the heels of lower mortgage rates but, inventory was “low” in most areas, especially for “fresh” and “affordable” listings. A lower than normal level of new construction contributed to the lack of inventory. Qualifying for a mortgage was reported as difficult, although becoming easier (e.g., TX, CA, NY). Problems facing potential home buyers included modest income growth, weak credit and income profiles, and in the case of condominium buyers, projects not meeting eligibility guidelines for borrowers to obtain FHA/VA or conventional financing.

Looking ahead at the spring market and the increased buying interest, REALTORS® were broadly more optimistic about the outlook for the next six months. REALTORS® cited the positive effect of mortgage rates now at less than 4 percent and the reduction in FHA monthly mortgage insurance premium rates (by 0.5 percentage points). Optimism also increased in anticipation of the seasonal uptick in the spring season.

REALTORS® in states adversely affected by the harsh winter (e.g., MA, PA, IL) reported market slowdowns. In states with more oil and gas extraction activity (e.g., TX), there was concern about the impact of the steep drop in oil prices in their market. In coastal areas (e.g., FL, NJ), the uncertainty regarding flood insurance rates continued to be reported as affecting sales.

America’s housing stock is increasingly becoming old, with structures typically about 40 years old. This means that homeowners will likely need to do some renovation/remodeling for structural or aesthetic purposes prior to selling their home, or if sold on an as-is basis, homebuyers may need to undertake the renovation/remodeling themselves.

The financial burden of remodeling/renovating a home can be eased significantly by spreading out the renovation/remodeling or doing so on a do-it-yourself (DIY) basis. DIYs can cost less by as much as a half. For example, based on data from the 2013 American Housing Survey, a bath remodeling/renovation typically cost $3,000 (DIY) vs. $8,221 (professional), a kitchen renovation at $15,000 (DIY) vs. $35,821 (professional), and roofing at $1,800 (DIY) vs. $5,00s (professional).

Undertaking the activity might appear daunting to first-time homebuyers, but it is important to note that these added costs are still lower compared to the price differential between a new or existing home. The price differential between existing and new homes has widened from about 10 percent historically to about 37 percent in 2014. The median price of an existing home in December 2014 was $209,500, while the median price of a new home was $ 298,100—a difference of $88,600! Rising construction costs, increasing scarcity of lots, and low level of supply/inventory have pushed up prices of new homes.[1]

What this Means to REALTORS®Many factors come into play in choosing a home, but first-time homebuyers may need to better appreciate the financial benefit of purchasing an existing home as a starting point for homeownership, instead of “saving up for a new home.” In addition to the initial financial benefit of purchasing a cheaper existing home compared to a new one, the homebuyer will start gaining equity which can then be used to “trade-up” to the next home, possibly a newer home.

[1] “Cost of Constructing a Home”, NAHB, http://www.nahb.org/generic.aspx?sectionID=734&genericContentID=221388&channelID=311.The National Association of Home Builders attributes the increase in the cost of new home construction to rising construction costs and larger house size. Construction costs are increasingly being pushed up by the rising cost of building permit fees, impact fees, and water and sewer inspection. The scarcity of land/lots has also pushed up the cost of lots on a per unit basis (per square foot) , but developers have compensated for this by reducing lot size.

The REALTORS® Confidence Index, based on approximately 3,000 random responses each month, provides insight on home buyer characteristics. An analysis of buyers by age shows the differences between age groups.

Sixty percent of buyers aged 34 and under previously lived in a rental unit, compared to 34 percent of buyers aged 35 to 55.

Buyers aged 34 and under have shown to make relatively low downpayments compared to buyers aged 56 and older, who typically put over 20 percent towards their downpayment.

Buyers aged 34 and under are generally first time buyers. In contrast, buyers aged 35 and older typically buy homes for relocation purposes due to a job change, or for “other” reasons—typically moving from one home to another as personal and family circumstances change.

New home construction activity in January was notably higher versus one year ago. But the momentum stalled as month-to-month activity fell even after accounting for normal winter seasonal factors. Overall assessment is that new home construction is still woefully inadequate.

Specifically, housing starts in January reached 1.065 million units (seasonally adjusted annualized rate), a decline from 1.087 million in December, but an increase from 897,000 one year ago.

The 50-year average on housing starts before the housing market crash was 1.5 million each year. That many new homes are needed to accommodate the rising population and to replace inhabitable homes. For 7 straight years, America has produced less than one million new homes. This great underproduction of homes is the reason for the continuing inventory tightness and should be a major source of concern about future housing shortage.

The shortage is occurring in the single-family homes. The construction of new apartments (multifamily units) appears to be pretty much back to historical normal. Even so, the rental population has been booming and the apartment vacancy rates have hit historic lows. Therefore, a further boost to multifamily units may be needed as well.

The months supply of inventory of new and existing single-family homes are at around 5 months. That is too tight and if it persists then home prices will strengthen at an unhealthy pace. Rents are also strengthening too fast. The bottom line is that homebuilders need to get busy. Another 50 percent boost to housing starts is needed to help alleviate inventory shortage.

As with all economic data, housing starts data are seasonally adjusted. That helps to understand the momentum trends better. But the real world activity is such that in cold regions, like the Midwest, construction is minimal in winter compared to spring and summer. The winter lows tend to be about one-third the activity of summer highs.

Because construction work is seasonal and not necessarily pleasant, migrant workers are often used in many countries. These workers return home in winter months. That is why there are many babies born in August to November months in countries where migrant construction workers come from.

Purchases for investment purposes appeared to be on the uptrend, according to the December 2014 REALTORS® Confidence Index Survey. Approximately 17 percent of REALTORS® reported that their last sale was for investment purposes (15 percent in November 2014; 21 percent in December 2013). Low interest rates, with the 30-year fixed mortgage rate now at below 4 percent, may have steered investors back into the market. Most investment buyers are in the ages 35-55 year-old bracket.

REALTORS’® outlook for the next six months for townhomes and condominiums was generally “weak” across most states, except in the District of Columbia, North Dakota, Colorado, Texas, California, Florida, Hawaii, and Alaska (red), according to the December 2014 REALTORS® Confidence Index Survey. These states have experienced strong job growth due to the oil/gas and information technology sectors. However, REALTORS® in the states that are heavily reliant on oil and gas such as Texas and North Dakota have started to caution about the effect of falling oil prices in their states.

REALTORS® continued to report that obtaining FHA unit financing for condominiums is difficult because many condominiums do not meet FHA eligibility criteria.[1] Condominiums are frequently the entry point to homeownership for first-time homebuyers, more so with the growing interest for “walkable” and “smart” neighborhoods.

What Does This Mean For REALTORS®? Helping buyers find starter homes may be an increasing challenge given FHA requirements and increasing demand. REALTORS® will need to work more patiently with homebuyers and present a wider set of feasible alternatives.

[1] Condominium projects need to pass eligibility criteria to be FHA-approved that will enable borrowers to avail of an FHA mortgage. Among others, criteria relate to the area devoted for non-residential use (no more than 25 percent),ownership (no more than 10 percent ownership by a single entity), delinquency dues ( no more than 15 percent), use of facility (assisted living facility are generally not eligible), and rental pooling arrangements (not eligible). See http://portal.hud.gov/hudportal/documents/huddoc?id=11-22mlguide.pdf

Using data from the 2014 Profile of Home Buyers and Sellers and 2013 Home Features Survey we can break down household composition, and the relationship it has to home purchasing choices.

Married Couples:

Married couples had a median age of 43, whereas for married first-time buyers this was 31 and for married repeat buyers 51. Married couples made a median income of $98,300. For married first-time buyers the median household income was $79,400 and for married repeat buyers $107,800. For married couples, the median size of the home purchased was 2,090 square feet. The median price paid for their homes were $240,000.

Single Females:

Single female home buyers had a median age of 52. For first-time buyers the median age was 33, and for repeat buyers 58. For all single female homebuyers, the median household income was $54,800. For first-time buyers the median household income was $47,900 and for repeat buyers $60,600. For single females the median size of the home purchased was 1,500 square feet. Single females paid a median price of $153,600 for their home.

Single Males:

Single male home buyers had a median age of 47. For single males who were also first-time buyers the median age was 31, and for repeat buyers the median age was 56. Single males earned a median household income of $65,800, with first-time buyers earning $60,100 and repeat buyers earning $71,800. Homes purchased by single males had a median size of 1,570 square feet. Single males paid a median price of $173,700 for their home.

Unmarried Couples:

Unmarried couples had a median age of 33, with 28 for first-time buyers and 46 for repeat buyers. Unmarried couples earned a median household income of $80,800, with first-time buyers earning a median household income of $68,300 and repeat buyers earning $97,200. Unmarried couples purchased homes that had a median square feet of 1,640. The median price unmarried couples paid for their homes was $186,600.

REALTORS’® confidence about the outlook for the next six months improved significantly in December, according to the December 2014 REALTORS® Confidence Index Survey. In the single family market, the REALTORS® Confidence Index - Six-month Outlook increased to 67 (60 in November 2014; 66 in December 2013). An improving jobs market, the decline in the 30-year mortgage rate to about 4 percent, and recent measures by the Federal Housing Authority to lower the monthly mortgage insurance premium from 1.35 percent to 0.85 percent and the GSEs (Fannie Mae and Freddie Mac) to buy mortgages with 97% loan-to-value ratio may be underpinning this increased optimism. Optimism also picks up in anticipation of the seasonal uptick in the spring season.

Across many states[1], the index was greater than 50, which means that the number of respondents who have a “strong” outlook outnumbered those with “weak” outlook. The outlook for single family homes was strongest in North Dakota, Colorado, and Texas (red). However, REALTORS® in states that are heavily reliant on oil and gas such as Texas and North Dakota have started to caution about the effect of falling oil prices.

[1] The market outlook for each state is based on data for the last 3 months to increase the observations for each state. Small states such as AK,ND, SD, MT, VT, WY, WV, DE, and the D.C. may have less than 30 observations.

REALTORS® reported that local markets broadly picked up for single-family homes in December 2014 compared to November 2014, although market activity was more modest compared to a year ago, according to the December 2014 REALTORS® Confidence Index Survey.

The REALTORS® Confidence Index-Current Conditions for single-family homes was 51 (49 in November 2014; 59 in December 2013). The indexes for townhomes and condominiums remained below 50. REALTORS® continued to report that financing for condominiums is difficult to obtain because of FHA financing eligibility regulations. An index above 50 indicates that the number of respondents who viewed their markets as “strong” outnumbered those who viewed them as “weak.”[1]

Rising employment, although accompanied by weak wage growth, and the decline in the 30-year fixed mortgage rate to slightly less than 4 percent since October 2014 likely accounted for the uptick in market activity.

[1] An index of 50 delineates “moderate” conditions and indicates a balance of respondents having “weak”(index=0) and “strong” (index=100) expectations or all respondents having moderate (=50) expectations. The index is calculated as a weighted average using the share of respondents for each index as weights. The index is not adjusted for seasonality effects.

Job gains have been accelerating in the final months of 2014. Nationwide, 2.95 million net new jobs were added to the economy over the 12-months to December.

North Dakota and Texas were leading the way. But the oil price collapse will slow the job growth pace in the upcoming months. Utah, Delaware, and Nevada round out the top-5 states in terms of job growth rates.

At the bottom are Ohio, Mississippi, New Jersey, Virginia, and Alaska. Even so, these states are creating jobs, though not as strong as other states. That means that all states are steadily building the source of housing demand.

Jobs will impact both residential and commercial real estate. Among the mid-to- large metro markets, the winners (those running at 3% or higher) are:

Seahawks may be crying but they easily beat the Patriots home city of Boston in terms of job creation. Seattle’s job growth rate was among the winners at 3.2 percent versus Boston’s 1.9 percent. The thrilling ending just reminds us about how we wish we can take back one important decision in our life for a re-play. Life hurriedly moves on, however. What is done is done and no need to look back.